In a dramatic shift, London landlords are offloading their rental properties at unprecedented rates, spurred by looming tax hikes from the U.K. Labour government. Nearly 30% of homes for sale in London were previously rental properties, according to the latest data from property portal Rightmove. This surge reflects a broader trend across the U.K., where 18% of all properties listed for sale were formerly tenanted.
This sharp increase contrasts with historical trends, where an average of just 14% of properties for sale were former rentals over the past five years. In 2010, this figure was only 8%. The current spike in property sales is attributed to growing concerns over potential tax changes anticipated in the upcoming Autumn Statement by Finance Minister Rachel Reeves.
The Labour government is expected to unveil a painful budget, following the discovery of a £22 billion ($29 billion) fiscal shortfall since taking office in July. Speculation abounds about significant tax hikes, including a potential increase in Capital Gains Tax (CGT). Currently, CGT for buy-to-let landlords is set at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. Proposed changes could equalize CGT rates with income tax, further discouraging investment in rental properties.
The pressure on the buy-to-let market has been mounting. Recent years have seen the elimination of several tax incentives, rising interest rates, and a cost-of-living crisis that have diminished affordability for landlords. The number of new buy-to-let mortgage approvals has dwindled in 2023, marking the first decline in nearly three decades. Investment properties and second homes have decreased by 8.7% compared to three years ago.
Despite a broader downturn in the property market, there are signs of recovery. The Bank of England’s recent rate cut has sparked a 14% increase in the number of new properties on the market compared to 2023. However, the future of the buy-to-let sector remains uncertain.
As the property market grapples with these changes, industry experts warn that continued pressure on landlords could worsen existing rental affordability issues. A vibrant rental sector relies on ongoing investment from landlords to maintain a diverse and high-quality housing supply. Without incentives to keep landlords in the market, tenants may face higher rents and fewer housing options.
Amidst this shifting landscape, speculation has also emerged about potential takeovers in the real estate sector. Rupert Murdoch’s REA Group, for instance, has identified growth opportunities in the U.K. market, with Rightmove as a possible acquisition target.
As London landlords rush to exit the market, the question remains: how will the anticipated tax increases impact the broader real estate landscape and the rental market? The kingdom’s economic strategies and regulatory decisions will be pivotal in shaping the future of housing in the capital.
